Pros and Cons of Capitalism

August 26, 2021

We start by defining the term capitalism. It refers to an economic system where private individuals and business owners own capital goods. Production of goods and services depends on the laws of supply and demand in the market, also known as a market economy– it is not dependent on central planning-known as planned economy or command economy.
The purest form of capitalism is free market or laissez-faire capitalism. Private individuals can be unrestrained in this environment and social structure.

Private individuals can decide where to invest, produce or sell products and fair prices to exchange goods. The marketplace is open to all without any controls or checks.
Today, most countries practice a hybrid capitalist system that includes government regulation of business and ownership of select industries.

Pros and cons of capitalism

What are the advantages of capitalism?

Capitalism encourages innovation

Capitalism encourages creativity like no other economic system because it must compete. This happens at all levels. To produce better products, businesses invest in R&D. To be as productive and efficient as possible; employees are constantly looking for the best practices. Services have been upgraded to solve more problems.

It’s a society that relies on the service of others

In this benefit of capitalism, there are two ways to see capitalism are possible. First, and most importantly, people in capitalist societies work for their gains. A second benefit of working in a capitalist-centered society is that it benefits everyone involved. Producing products for other people can lead to a high income and help solve a problem. Capitalist goods are intended to improve people’s lives.

Capitalism does encourage equal opportunities

While the rich tend to get richer and the poor remain poor, everybody in a capitalist-oriented society has a first chance to succeed. While some may need to work harder than others to succeed, there is always an opportunity. You don’t always get a monetary reward. One guideline is that you can achieve the definition of success by working hard.

It provides independence

This is for the benefit of governments and not individuals who intervene in the economy. Capitalism’s citizens are the focus. Demand drives prices and production. The government can intervene, but the citizens are free to choose the goods and services that best meet their needs; there is economic freedom.

Capitalism encourages democracy

Capitalist societies have limited control over businesses because customers can take them down. The corporation will cease to exist if customers aren’t involved in the services or products it provides. This means that companies can produce the goods and services they want, which will satisfy customers’ and households’ needs.

What are capitalism’s disadvantages?

1. Capitalism is a consumer-driven economic system. There is a particular focus on wealth in a culture founded on capitalism. Products must be purchased. To buy the food you want, you will need to raise funds. This means that people are more likely to work for their bosses than work for themselves. You can work or not, but it is not possible to be part of a capitalist-based society.

2. It places the company’s needs before the individual’s.
Corporations are the new policy in capitalist societies. To keep the business operational, it must innovate and reduce costs. Capitalism’s focus is not on creating more demand but on decreasing the number of jobs. Self-checking in supermarkets and restaurants is a good indicator of this development.

3. Chances of equal opportunity can be brief and fleeting.
While everyone has the potential to succeed, these chances are often minimal and can be hampered by government interference. People with more resources will be able to build more wealth on their own. People with limited resources may choose to focus their efforts on building wealth rather than self-persistence. This creates two distinct groups: the haves and the have nots (wealth inequality).

4. There are people who fear success. Capitalism is about capable people. Individuals who cannot make positive efforts due to injury or incapacity will not be able to help themselves. These
people are considered non-essential to civilization’s survival. Capitalism is all about competitive supply and demand. If you don’t have the production capacity or money to meet demand, you are not needed.

5. Privatization is facilitated by eventually unregulated capitalism.
Corporations will eventually become pure capitalism until there is one supplier. This is done to limit competition and ensure that only the best-selling goods or services are available. This is known as a “monopoly,” and the client has all control over customer and business relationships. The buyer must accept what you offer, regardless of how much it is.
Capitalism offers only ongoing opportunities for growth. Real accumulation of wealth happens when there are endless possibilities. This is what children learn in kindergarten.

Many children with a poor standard of living go to school every day without enough sleep. There are good chances that you won’t have a healthy breakfast. Low-income households are more likely to experience child abuse, family violence, poor clothing, second-hand smoking, and limited experience. According to The Advocate, Title I districts have seen a decline in support and access to resources since 2010, despite higher revenue from schools in more prosperous areas.

Types of Capitalism

Capitalist societies are those that have the highest values

1) Private property rights
2) The enforcement of contracts
3) Voluntary exchange. However, there are diverse deviations from capitalism’s purest form, most specifically when private property rights are eroded by governmental influence. There are many variations on capitalism’s purest form.

Crony Capitalism

Crony capitalism refers to situations in which a company’s success is affected by the strategic influence of politicians or civil servants. Orson Welles The famous film “The Greatest Movie Ever Made” Citizen Kane is an excellent example of crony capitalism. The film is a quasi-biographical portrayal of the life of a newspaper magnate in the early 20th Century. It was loosely inspired by several tycoons from the time, including William Randolph Hearst Who bought politicians for favors.

Democratic Capitalism

Democratic capitalism Accepts pluralism, which recognizes that people have different opinions and interests. This allows them to associate to further their interests freely. Dr. Edward Younkins is the author of Capitalism and Commerce. Three tenets of the democratic capitalism system are described in this article:
1. An economy that is based primarily on free capital markets and economic incentives
2. a democratic polity
3. A classical-liberal moral and cultural system that invigorates pluralism
The Founding Fathers of the United States believed strongly in democratic capitalism, forcibly placing worth on liberty and equality in the United States Constitution.

Finance Capitalism

The pursuit of profit defines finance capitalism by selling and purchasing financial products, such as stocks, bonds, and other derivatives. Finance capitalism also includes lending money at a specific interest rate.
Real estate delves deeply into finance capitalism. This type of capitalism is demonstrated by buying real estate, mainly when it’s done for investment purposes—E.g Flipping houses.

Laissez-faire Capitalism

Laissez-faire capitalism This is offshoot capitalism in which the economy operates without any rules. This is a form of capitalism with a lack of government intervention over the economic market, and the state is entirely separate from it.
It has been declared that The Great Depression resulted from a laissez-faire capitalist society. In the time building up to The Great Depression, massive amounts of money, energy, wealth, value, capital, and power rested in the hands of a minimal number of people, causing the United States’ money celerity to grow at a slower rate.


Mercantilism This is an example of early form capitalism dating back to the late 16th Century. Mercantilism is built on the idea that a country’s natural resources are increased by a well-managed trade balance with other capitalist countries. Mercantilism can be described as a combination of state-grounded and national business interests.
Early American colonies practiced mercantilism. Colonists could only trade with their mother country, which was either France or Britain.

Social Market Economy

The term social market economy refers to an economy where government intervention is minimal. However, to reward labor rights, the state offers a wide range of social services (such as sanity and unemployment benefits) to help people get by.
Sweden operates under a social market economy. Many people consider themselves to be beneficiaries of Sweden’s social welfare system. Common welfare and mutual aid are a system that many people can benefit from. For example, extended parental leave for new parents.

State Capitalism

There are two types of state capitalism. One type allows private ownership of capitalist businesses while the government retains significant control. The other type is where the state plays the role of an employer and uses workers to benefit government interests (e.g., a federal postal system).
The history of state capitalism can be traced back to the great powers that ruled the world during World War I or II. In the course this time, the government controlled the account and output of production, as seen in Nazi Germany and the former Soviet Union.

Fair and Free Market System

Private ownership rights and free markets must be maintained to create a capitalist society. As renowned economist Milton Friedman asserted, “The problem of social organization is how to set up an arrangement under which greed will do the least harm. Capitalism is such a system. But, even in a capitalist economy, the role of government forces tends to dominate.
This is when capitalism, in its purest form, becomes altered. There are many forms of capitalism. Capitalism will always have supporters and critics around the globe. A free market and private ownership can offer tremendous economic opportunities. However, there are instances when greed and corruption can manifest. These should be addressed through a democratic process that is honest and thoughtful.

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